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Crackdown on chit-fund firms hits property prices in Bengal

Posted on Mar 10, 2015

Till about a year ago, property prices were zooming in Durgapur. With money-collection companies — read, chit funds — opening plush offices at every nook and corner and buying up land, this Tier-II Bengal city recorded one of the highest property price appreciation rates in the country.

All of that is history now. Land prices have crashed. According to Mayank Saksena, MD – Land Services, JLL India, a top property consultant, land prices are now down 70-80 per cent in Durgapur over last year.

This is thanks to the Supreme Court ordering a CBI probe into the money-collection companies in May 2014.

These companies tended to park funds in real-estate, mostly in the districts. This also served a key purpose of convincing the people about the companys finances, in turn, attracting deposits.

The influence of money-collection companies on land prices in Bengal became clear in the days following the 2008 financial crisis.

Contrary to the trend elsewhere in the country, land prices continued to rise here in Bengal. A BusinessLine report of February 2013 quotes Cushman and Wakefield as saying that land prices saw “significant” upward movement between 2010 and 2013. Not surprising, considering that was the period when deposit-taking activities peaked, and Saradha Group was leading the pack.

The trend continued even after the collapse of the Saradha Group, in April 2013. Even as the West Bengal government resisted a CBI probe for over a year, ponzi operators went into a frenzy collecting funds.

According to information available with the Justice Shyamal Sen Commission, set up by the State government; over 600 ponzi schemes were running in West Bengal, till last year.

But the spate of arrests by the CBI since August 2014 and the expanding scope of the probe have stopped these operators in their tracks; they are now desperate to sell assets at deep discount. The CBI investigation that began with the Saradha scam in May 2014 has already expanded to eight more ponzi operators. The last inclusion is allegedly the biggest of them all — the Rose Valley group. The upshot of all this is the collapse of the land market.

JLL Indias Saksena says that land prices are collapsing in Malda, Murshidabad, Medinipur, Asansol, Siliguri — once the hubs of the money-collection activity. Kolkata is relatively less affected though prices have dropped 25-30 per cent.

Sunil Koley, a Kolkata-based engineering consultant to property developers, confirms that with the market now dependent on retail investors; real-estate development has been hit across the State. Till last year, Koley was working on several projects, now he is flooded with offers for sale of land and at huge discounts too.

A five-acre prime parcel near the IIM campus at Joka on the southern fringes of Kolkata, for example, is now available at half last years price.